Voice over IP providers Vonage and AT&T have cut rates by $5
per month for existing and new customers, as competition for early adopters
of the technology heats up.

Vonage now charges about $25 per month for unlimited calling throughout the
50 states and Canada. It also still has a $15 per month plan that provides
500 minutes of local, long-distance and toll calling.

AT&T prompted the move by cutting its residential
offering to $30 per month. In addition, some AT&T promotions provide the
first month of service free to new subscribers who sign up before Jan.
31, 2005.

It said the holiday shopping season was a motivating factor behind its recent pricing drop.
In June, Ma Bell reduced its CallVantage price from $40 to $53.

A number of smaller VoIP providers offer packages that are even cheaper,
although they may not provide the same coverage area.

So how low could VoIP go? It would be foolish to say how low the offering
could be ultimately priced, because it might dissuade people from signing up
now. But increased competition (for example, AOL is testing
a VoIP offering) and a larger customer base could further drive down
prices.

Slepian said deep-pocketed
Vonage considers regional telecoms like Verizon and Qwest
to be the company's prime competitors.

For its part, AT&T believes its service is attractive despite being $5
higher than Vonage.

"We believe we offer a better value proposition when you take into account
our call quality, reliability and advanced feature set," said Gary
Morgenstern, an AT&T spokesman.

He also noted that most of the company's customers signed up under a
six-month introductory program that charges $20 per month. So
most of AT&T customers haven't paid more than that so far.

VoIP providers are also working to secure relationships with big retailers.
Earlier this week, AT&T announced a reseller deal with Circuit City. And
8x8's Packet8 VoIP and videophone service can now be
bought through Amazon.com .